With another week of insights gathered on the potential for any losses from hurricane Milton, thanks to industry loss estimates and catastrophe bond pricing, the net asset values (NAVs) of US mutual investment funds that allocate to catastrophe bonds and other insurance-linked securities (ILS) were mostly marked up again at the end of last week.
As we’d reported, for three days in a row, some of the asset managers with ILS strategies in the mutual fund format cut their NAVs after hurricane Milton, as they grappled to understand the potential impacts and losses that could be faced.
Now, with further inputs gained last week and the additional input of new secondary cat bond pricing last Friday, further corrections have been made, with the majority of funds marking their NAVs higher again.
First, Stone Ridge Asset Management and initially this alternative asset manager had made the most significant cuts to the NAVs of its two dedicated cat bond and ILS funds as Milton approached landfall.
The more catastrophe bond focused of its strategies, the Stone Ridge High Yield Reinsurance Risk Premium Fund, was marked down as much as -6.92% by October 9th, but since then has made a steady recovery.
As more clarity and pricing information emerged, this strategy made a steady recovery and stood only -1.94% lower than before Milton by pricing on October 15th.
As of pricing on Friday 18th October further increases to NAV were made and at the end of last week this cat bond focused fund stood -1.08% lower since before Milton.
The Stone Ridge Reinsurance Risk Premium Interval Fund that allocates capital across the spectrum of ILS and reinsurance-linked assets, with a particular focus on sidecars and private quota shares, as well as other collateralized reinsurance arrangements, had been down as much as -7.67% as of October 9th.
It had recovered to just -2.66% down since before hurricane Milton as of October 15th and then by the end of Friday 18th it had recovered further to be just -1.62% since the pre-landfall adjustments for the storm began to be made.
It’s worth noting that there is an accumulation of spreads each day that is also helping to reduce the decline caused by Milton, but it’s clear that Stone Ridge is taking a view that losses from hurricane Milton will be much lower than first anticipated, which is the same as what we’re seeing across other ILS funds, such as the UCITS cat bond funds we wrote about earlier today.
Moving on to look at investment manager Amundi US’ Pioneer-branded dedicated ILS funds, its dedicated catastrophe bond fund, the Pioneer CAT Bond Fund, had been -2.94% down on hurricane Milton by pricing on October 9th.
A steady recovery was seen and then when we last reported on it, the net asset value (NAV) stood at just -0.86% down since it started moving when hurricane Milton intensified and headed for Florida.
Now, as of pricing on Friday 18th, a particularly strong recovery now sees the Pioneer CAT Bond Fund NAV only -0.09% lower since before Milton marking began.
Amundi US’ other mutual ILS strategy, the Pioneer ILS Interval Fund, that allocates to strategies across quota shares, sidecars and collateralized reinsurance as well, had fallen as much as -2.36% at one stage after Milton.
It recovered, then fell again and stood -2.15% lower as of October 15th. But at pricing on Friday 18th, this ILS funds NAV rose further, leaving it -1.54% since before Milton.
So the two interval style mutual ILS funds, of Stone Ridge and Amundi US, are now fairly aligned in their Milton mark-downs. But the cat bond funds differ somewhat, with Stone Ridge having held its strategy slightly lower while Amundi US has recovered the majority of the initial Milton mark-down already.
We said ‘mostly’ in the headline to this piece, as one strategy continues to move differently to the others.
The Ambassador US mutual catastrophe bond fund strategy, operated by advisor Embassy Asset Management, had seen an initial -2.41% decline as hurricane Milton approached Florida beginning on October 7th, but had then recovered a lot of that back again and was only -0.1% down since before Milton NAV moves began as of October 14th’s pricing.
But, the Ambassador cat bond fund was marked more heavily on Friday 18th October, by -0.77% which now leaves it at -0.87% since before hurricane Milton first threatened.
It’s been interesting to watch how these mutual cat bond and ILS funds moved as hurricane Milton first threatened, then as the landfall location and wind speeds became clear, again as the first pricing of cat bonds and industry loss estimates emerged, and once again as additional data became available to inform any loss picks and asset pricing decisions.
It shows the differences in strategy, between different managers, but it also shows an alignment between the pricing at times as well and the movements that have occurred are also aligned with how other types of ILS funds have adjusted their NAVs, such as the UCITS catastrophe bond fund strategies and how the Swiss Re cat bond market index moved.
Continued adjustments are likely to be seen as more information and eventually loss reports become available, but these are likely to prove harder to see over time as the funds will continue to accrue spreads and premiums from the catastrophe bonds and reinsurance contracts they invest in, which given ongoing performance levels are high may start to mask the small additional adjustments investment managers make due to Milton to their mutual ILS fund NAVs.
Finally, once again it’s worth reiterating that at the levels of decline seen due to Milton, the negative effect of the hurricane has been absorbed within around one month at most, much less in some cases, of the strong performance seen in cat bond and ILS funds at this time of year.
Read all of our hurricane Milton coverage.
